It has now reached its lowest levels since November of last year. The exchange rate dropped sharply to 1,1495 from its year-todate high of 1,2080. The Iranian war may cause this retreat to continue.
Energy prices are rising in Europe due to the war in Iran
Investors have been focusing on the Iranian War, which has driven energy prices significantly higher.
The European Union is highly vulnerable to the crisis, as it relies heavily on Middle East energy sources. This has been exacerbated by Russia’s recent invasion of Ukraine.
Now, the bloc imports the majority of its gas from Qatar as well as other Middle East nations. Iran’s closure of the Strait of Hormuz has now cut these products off.
Inflation will therefore likely return to its previous levels, undoing all the gains made by the European Central Bank.
Next week, the ECB will announce its interest rate decision. The bank is expected to keep interest rates at 2.15 % and deposit facility rate at 2%.
In a report published on Friday, most economists believe that the Bank of England will keep interest rates at their current level until 2028. This survey is at odds with the expectations of market participants, who are pricing in a quarter point hike for July. Bloomberg’s analyst stated:
If the inflation expectation rises and persists, a hike may still occur this year.
Federal Reserve interest rate decision
Another important factor for this pair is the Federal Reserve’s interest rate announcement on next Wednesday.
The US released mixed economic statistics. The report revealed that in February, the job market had deteriorated as it lost over 92,000 positions and the unemployment rate increased to 4.4%.
A report published this week revealed that both the Consumer Price Index and its core rose by 2.4% and 2.5 percent respectively in February. Core inflation fell on a MoM-basis.
Analysts now expect inflation to rise as the energy price increases. Top analyst believes that inflation could jump up to 3.4%, if the inflation rate continues to rise.
Federal Reserve now finds itself in a difficult situation. A rate reduction would increase inflation by increasing consumer spending. A rate increase would, on the other hand drive the economy into the red.
Technical Analysis of EUR/USD
EURUSD pair chart | Source: TradingView
Daily chart: The EUR/USD pair is in a severe crash, as investors have moved over to the US Dollar. The pair has fallen from 1.2080, the high in January, to 1.1483 at present.
It dropped below the trendline ascending that connects the lowest swings seen since last July. The spread between the 200-day WMA and the 50-day WMA is about to create a death-cross pattern.
The Average Directional Index has increased to 33. This is an indication that the downward trend is intensifying. The pair is therefore likely to continue dropping as the sellers aim for the important support level of 1.1390, which was its lowest point in July.
The ICD published this article EUR/USD Forecast: Death Cross Approaches Before Fed, ECB Decisions.
